In July last year Treasury sought feedback on the In Australia
special conditions for tax concession entities.

We are pleased that the Government has listened to the feed-back
provided by the NFP sector and advisors and on 17 April 2012
released a revised exposure draft for comment. (Click
here for link to the revised exposure draft)

The revised ED is a significant improvement from the prior
exposure draft and we note that the Government has attempted to
address all of our major concerns. In particular the latest
exposure draft:

expressly allows NFPs to transfer profits or assets between NFP
entities with similar purposes as well as make payments for genuine
compensation for services provide to, or reasonable expenses
incurred on behalf of the not for profit even if those NFPs are
owners or members. The previous draft did not allow any of these
payments to be made to members, even if the members were themselves
NFP entities.

only requires a tax exempt entity to comply with all
substantive requirements in their governing rules.
The previous draft required compliance with all the requirements in
the governing rules. A tax exempt entity will not lose its tax
exempt status for a minor or insignificant breach of its governing
rules.

requires tax exempt entities to operate principally in
Australia and pursue their purposes principally in
Australia. There are some exceptions including:

grandfathering any entities currently prescribed in the
regulations under section 50-50

deductible gift recipients (as they have a stricter sole
purpose test (that allows some activities that are incidental and
minor), international affairs organisations and certain
environmental organisations

entities that are to be prescribed in regulations

allowing certain funds received from government or
non-deductible donations to be excluded from principally in
Australia calculations

Clarifies that public educational institutions and public
hospitals are not required to be not for profit entities to obtain
tax exempt status (section 50-51(1)(b))

The main issues arising from the revised exposure draft
legislation are:

there is still a strict requirement for the use of income and
assets solely for the purpose for which the tax
exempt entity was established. There is no leeway for minor or
insignificant breaches.

Still some technical wording that could be improved in the
draft to ensure, beyond doubt, that the policy intent to allow
distributions to tax exempt parents without the loss of tax exempt
status is achieved. The way the legislation is currently drafted
will require all subsidiary entities to review their constitutions
to ensure that their objectives are similar to their parents.

Where a tax exempt entity gives money or property to another
entity, that is not a tax exempt entity, the use of the money by
the recipient is to be taken into account when the tax exempt
entity determines whether they operate principally in Australia.
This will place a greater burden on tax exempt entities to trace
the use of funds that they provide to non-tax exempt entities, than
is currently the case.

anyone looking to establish a new entity to undertake / fund
charitable activities overseas will not be able to obtain income
tax exempt status unless their activities or the entities that they
donate to are conducted principally in Australia unless they fall
into one of the excluded categories mentioned above. Therefore,
there will be some organisations that may consider applying to be
named in the regulations to ensure a continuation of their tax
exempt status.

Most DGRs have a stricter 'In Australia test' that
requires the DGR to be established in Australia, operate and pursue
its purposes solely in Australia. The DGR will also have to look
through any entity that it provides money to determine the final
use of the money under of the sole purpose test.

Any comments on the Exposure Draft are required to be submitted
to Treasury by 11 May 2012. Moore Stephens will be making a
submission and we welcome any comments you may have for inclusion
in our submissions.

Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.

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